Taking over parents house. Dealing with IRS and Mortgage company.

[Jocelyn Evans]

Background: Texas Home with 6.5 acres originally purchased in 2005 for $450k by my father in-law. In 2011 he had hardship and bank went after the house. We were able to stop foreclosure and secure a loan mod with HAMP in 2013. All payments since the mod have been paid by my husband and I. My father in-law no longer lives in the home. The mortgage remained in his name, we have POA over the property. In Sept 2015, we sold 4.5 acres of the 6.5 for $515k. The mortgage company(wells fargo) required that we pay the mortgage down to 210k in order to release the 4.5 acres. This generated approx $300k cap gains potential. We asked a CPA for advice and they told us that if we can satisfy a transfer/sale of the property from my father in-laws name into ours, we would get a $250k tax exemption.

With the tax year coming to an end, what other options do we have that will demonstrate a transfer of ownership to satisfy the IRS, but not trigger the Due On Sale clause with the mortgage? The current mortgage is at 2%, so keeping the existing mortgage would be ideal. 

The loan to value as the house sits today is around 60%. Every payment made has come out of our account and there have not been any late's since the mod.